2007–08 business plan - bc ferries · and analysis for the fiscal year ended march 31, 2007 and...

2 0 0 7 – 0 8 b u s i n e s s p l a n

this business plan contains historical

information and may contain certain

forward-looking statements which relate

to future events or future performance.

These forward-looking statements are

based upon management’s current

expectations and assumptions as to a

number of factors, including, the risks,

uncertainties and other factors as described

in BC Ferries’ Management’s Discussion

and Analysis for the fiscal year ended

March 31, 2007 and certain of the

other documents filed by BC Ferries on

www.sedar.com. These forward-looking

statements are made as of today’s

date and are based upon information

currently available to management and

BC Ferries assumes no obligation to

update or revise them to reflect new

events or circumstances. If management’s

expectations and assumptions prove to

be incorrect, or factors change, then

actual results could differ materially

from the forward-looking information

contained in this Business Plan.

4 IntroductIon and PurPose

6 organIzatIonal and governance overvIew

8 accomPlIshments

12 sItuatIonal analysIs

22 BusIness Plan goals

30 FInancIal Plan

36 conclusIon

Contents

b c f e r r i e s 2 0 0 7 – 2 0 0 8 b u s i n e s s p l a n

is more important or has greater priority than

our focus on safety in all aspects of our business creates a platform for success as we enter an exciting new era of new vessels, new services and new relationships with our customers.

our board of directors and management define as:

providing to our customers integrated marine transportation services that are safe, reliable and continuously improving while delivering best value for money.

~

operating in a manner that preserves our financial integrity.

~

4 British ColumBia Ferry serviCes inC.

This plan focuses on achieving five goals:

1. safety To continuously improve the safety of our

operations inclusive of vessels, terminals

and facilities.

2. operational reliability To continuously improve the operational

reliability of vessels, terminals and facilities.

3. continuous improvement To be better at everything we do.

4. value for money To continuously improve value to our

customers at every point along the customer

experience chain.

5. financial integrity To achieve key financial targets, ensuring that

sufficient capital and retained earnings are

available to revitalize our fleet, facilities and

infrastructure, while minimizing fare escalation.

This Business Plan moves the company into the next phase

of its journey as we will have introduced seven new vessels

to our fleet within the next three years, of which two vessels

are scheduled to enter service in the Fiscal Year 2007/08.

We also plan to complete significant terminal upgrades to

improve efficiency, and offer new services and choices to

our customers.

The five goals described in this plan provide a framework

for our efforts and are essential to achieving success.

Of these, none is more important, or receives greater

attention, than safety.

1 introduction and purpose

this plan Describes the

strateGies anD initiatiVes

We Will unDertaKe tO

achieVe Our business GOals

OVer the neXt Year.

52007–2008 Business plan

kuper — january 2007


We operate one of the largest ferry systems in the world.

We do so within a complex legislative and regulatory

framework. Our organization is designed to facilitate effective

operations with a primary focus on safety to better serve our

customers and position our company for the long term.

As illustrated in the table below, we have one of the largest

fleets in comparison to other major ferry operators around

the world.

2 organizational and governance overview

bc ferries anD its

emplOYees manaGe

anD Operate VariOus

lines Of business in

a cOmpleX netWOrK

Of relatiOnships.

Comparison of Select World Class Ferry OperatorsPassengers (millions) Vehicles (millions) Vessels

Transtejo-Transportes (Portugal) 31.2 0.1 30

Washington State Ferries (USA) 23.8 10.8 28

BC Ferries 21.7 8.5 36

Scandlines (Denmark) 19.8 4.3 22

Istanbul Fast Ferries (Turkey) 11.1 1 28

P&O Ferries (Great Britain) 10.5 1.6 13

Hellenic Seaways (Greece) 9.4 1.1 27

Stena Line (Denmark) 8.6 1.6 32

Jadrolinija (Croatia) 8.1 2.2 40

Navigazione Laghi (ITA) 7.2 0.7 36

Transmediterranea (Spain) 6.2 0.9 18

Wightlink (Great Britain) 5.7 1.2 12

Caledonian MacBrayne (Great Britain) 5.3 1.2 31

Viking Line (Finland) 5.3 0.4 7

Color Line (Norway) 4.4 1 10

Blue Star Ferries (Greece) 3.5 0.5 7

Sea France (France) 3.2 1.3 6

WG&A Superferry (Philippines) 3.2 0 11

Moby (Italy) 2.9 0.9 12

Minoan Lines (Greece) 1.5 1.4 7

Alaska State Ferries (USA) 0.3 0.1 11


british columbia ferries commissionerThe British Columbia Ferries Commissioner (the

Commissioner) is required to establish price caps and

monitor service levels for designated ferry route groups.

The Commissioner undertakes this regulation in accordance

with several principles, including placing priority on the

financial sustainability of the ferry system, encouraging a

commercial approach to ferry service delivery and moving

to a greater reliance on a user-pay system over time.

relationship to the provincial governmentThe Province of B.C. holds cumulative preferred non-voting

shares of British Columbia Ferry Services Inc. in the amount of

$75.5 million and receives an annual dividend of $6.0 million.

In addition, we have material contracts with the Province of

B.C., including the Coastal Ferry Services Contract.

coastal ferry services contractThis 60-year service contract came into effect on

April 1, 2003. It sets out the type and amount of core ferry

transportation services to be provided by BC Ferries and the

service fees payable by the Province of B.C. for such services.

As part of this contract, the services and fees are to be

reviewed at the end of specific performance terms. The first

performance term ends on March 31, 2008. The process for

determining the services and fees for Performance Term Two

(April 2008 through March 2012) is currently underway and

will be completed in fall 2007.

testing oF marine evaCuation Chutes on the queen of cowichan


At BC Ferries, we must above all ensure the safety of

our customers and provide a safe workplace for our

employees. In 2006/07 we continued to invest in vessels,

terminals and employees, with a priority focus on safety.

safety•Wecontinuedtodevelopnewandimprovedsafety

programs for all employees.

—Provided additional safety training for Bridge

Resource Management, ECDIS, Med A1/B1/B2

courses and Passenger Control.

•We commissioned former Auditor General George L.

Morfitt to conduct a comprehensive, independent

review of all BC Ferries’ safety practices. The review

resulted in 41 recommendations, all of which are

being implemented.

•Weestablishedanewvesselconstruction

division to ensure the safe and efficient integration

of new ships.

•WeheldregularmeetingswithTransportCanada

to improve our relationship and reduce regulatory

uncertainty.

•WeparticipatedwithotherCanadianferryoperators

and Transport Canada in establishing new security

regulations.

•Weimplementedanewphotosecurityidentification

card for all employees.

With a clear fOcus On safetY

anD serVinG Our custOmers

better, reVitalizinG Our

assets anD DeVelOpinG Our

emplOYees, We maDe substantial

prOGress last Year in builDinG

a better bc ferries.

3 accomplishments


operational reliabilityvessel maintenance and revitalization

•Wesuccessfullypurchasedareplacement

vessel, the Northern Adventure, for use

on our Northern Routes. The vessel

began operation in March 2007.

•Wecompleted21vesselrefitsin2006/07.

•Wecompletedamid-lifeupgradeon

the Queen of Surrey that included new

life-saving equipment.

•Webeganconstructionofthethreenew

Super C-class vessels and expect to take

delivery of the first vessel, the Coastal Renaissance,

in the fall of 2007.

•WelaunchedtheKuper, a vessel that

was re-constructed at Allied Shipbuilders

in North Vancouver.

•Westartedconstructionofanew125-car

Intermediate class ferry at Vancouver Shipyards

to replace the Queen of Tsawwassen .

•Wecommissionedthebuildingofanewvessel,

the Northern Expedition, to replace the 40 year-old

Queen of Prince Rupert operating in northern B.C..

•We began a mid-life upgrade on the Queen of Alberni.

terminal revitalization•WecompletedthereplacementofBerth2

at Tsawwassen.

•AtSwartzBay,wecompletedconstructionofa

new berth using an innovative floating concrete

design, and constructed a new west exit road to

reduce traffic congestion and improve safety for

our customers exiting the foot passenger area.

•WecompletedTerminalMasterPlansforDeparture

Bay, Denman West, Buckley Bay and Kuper Island.

•Wecompletedarchaeologicalassessmentsand

consulted with First Nations prior to development

at our terminals.

Coastal renaissanCe keel laying—january 2007


continuous improvement

•Wemetregularlywithlocalgovernmentsand

consulted with our Ferry Advisory and Terminal

Liaison Committees on areas of mutual interest,

including reviewing the Ferry Advisory Committees’

perspectives on Core Service Levels in preparation

for Performance Term Two.

•Weinstalledanewelectronicmessageboard

on the Island Highway north of Nanaimo to

provide real time sailing information for southbound

travellers giving them the option to decide between

ferries sailing from Duke Point or Departure Bay.

•Welaunchedanautomatedticketingsystem

at major terminals.

•Weestablishedandimplementedasuccession

plan and an extensive program of management

development throughout the organization.

•WeimplementedthenewCrewSchedulingSystem.

•Wecontinuedtoupgradeourvesselsandterminals

to allow for significant enhancements to food,

beverage and retail offerings.

•Weaddedspeciallate-nightsailingstoenable

customers to return to Vancouver Island after

BC Lions’ football games and the Steve Nash

Foundation Charity Classic.

•Weimplementedafleet-widefuelreductionplan

to decrease our consumption of fuel.

•WemetwiththeNorthAmericanIndigenous

Games Organizing Society to identify transportation

needs in preparation for the 2008 North American

Indigenous Games.


value for money

•Weintroducedseveralnewpricepromotions

for families and commercial traffic.

•Welaunchedanewfareprogram,theCOASTSAVER

Sailing Program, which enabled customers to

take advantage of significant savings (e.g. $20 for

vehicles and $5 for passengers) when travelling on

specified sailings.

•WepartneredwithParksCanadaand

BC Experience to introduce the Coastal Naturalists

program to inform, educate and give customers

a west coast experience while travelling

onboard our major route vessels.

financial integrity•Wecompletedadetailedreviewofourfinancial

processes to meet Canadian securities regulations.

•WesubmittedourPerformanceTermTwo

submission to the BC Ferries Commissioner in

accordance with Section 40 of the Coastal Ferry Act.

The submission will be used in the Commissioner’s

review and setting of fare caps for the period

2008–2012.

•Wecompletedasuccessfulissueof30-yearbonds

totalling $250 million at the very favourable rate of

5.021 per cent.


As part of our planning process, we regularly undertake

external and internal reviews of our business. This past

year, management continued its focus on safety throughout

the entire company.

The Morfitt Safety Review contained 41 recommendations

for BC Ferries, including:

•havingastrategicgoalthatpertainsdirectlyto

safety, with identified tactics, measures and targets

related to achieving that goal;

•reinforcingthecommitmenttooperationalsafety

as the company’s number one priority, and that at

no time should any other company objective take

a higher level of priority; and

•workingcooperativelywiththeBCFerry&Marine

Workers’ Union to continuously improve the SMS

and operational safety practices.

We have committed to addressing Morfitt’s recommendations

in a timely manner.

In addition, management focused on immediate service

recovery for the north, including supplemental barge and

air transportation, as well as a long-term asset acquisition

strategy to restore service levels. We did this and accelerated

the process of constructing a replacement vessel for a new

Northern Vessel, the Northern Expedition, to replace the

Queen of Prince Rupert.

Looking forward, we also identified the following trends,

risk factors and opportunities that may influence our future

performance. These have been considered in the development

of the strategies and tactics described in this Business Plan.

5 situational analysis

We cOntinuOuslY mOnitOr

Our business, usinG bOth

internal anD eXternal

resOurces, anD are

fOrecastinG mODest traffic

VOlume increases anD

OppOrtunities fOr GrOWth

in Other marKets.


travel Demandvehicle and passenger trafficVehicle and passenger traffic for 2006/07 was 0.3 and

0.3 per cent lower respectively than the previous year.

This is attributed to several factors—including the loss of

the Queen of the North, a competitive commercial market

segment, continued high fuel costs, a strong Canadian dollar,

the pending new US passport regulations for travel to and

from Canada, and inclement weather conditions in the fall

and winter.

Our traffic projections for 2007/08 are for vehicle traffic to

grow 1.4 per cent and passenger traffic to grow 1.6 per cent

from 2006/07 levels. This pattern of moderate growth is

consistent with traffic levels for the latter part of the 1990s

and through 2006.


economic forecastIn 2006, Real GDP in the Province increased by 3.9 per cent.

In December 2006, B.C.’s Economic Forecast Council forecast

real gross domestic product in the Province to increase by

3.4 per cent in 2007 and by 3.3 per cent for the years

2009 to 2011.

Improvements in B.C.’s economy, higher personal

disposable income and population growth are all expected

to contribute positively to ferry traffic in the near term.

However, the volatile Canadian dollar, labour shortages, the

slowing US housing market and its effect on B.C.’s lumber

industry pose further risk to the economic outlook for both

B.C. and Canada as a whole.

tourism trendsHistorically, there has always been a strong correlation

between the volume of ferry traffic and tourism in coastal B.C.

Looking forward, there are many major planned events for

the B.C. tourism industry, all of which offer opportunities

for BC Ferries:

•theNorthAmericanIndigenousGamesin2008

in Cowichan;

•2009WorldPoliceandFireGamesinthe

Lower Mainland; and

•theOlympicandParalympicGamesin2010.

Tourism BC has identified the following 2010 Goals:

•todoubleprovincialtourismrevenuesby2015

through increased visitation, increased spend

per trip and increased length of stay;

•tomaximizethelong-termbenefitsofthe2010

Olympic and Paralympic Games; and

•toworkwithpartnersinthetourismindustry,

VANOC and Government to leverage resources

and ensure a successful 2010 Olympic and

Paralympic Games.

In the longer term, the recent announcement by China

that Canada now qualifies for preferred status for Chinese

travellers has very positive implications for tourism growth.


upcoming changes in cross-border travel for american citizensUnder the Western Hemisphere Travel Initiative (WHTI),

it is anticipated that by June 1, 2009, US citizens

travelling between the US and Canada by land or sea

(including ferries) will be required to present a valid

US passport.

As an alternative to the passport, the Passport Card (also

referred to as the PASS Card) is a limited-use US passport

in wallet-sized card format currently under development.

It will be available for use for travel only via land or sea

(including ferries) between the US and Canada, Mexico,

the Caribbean and Bermuda.

container and commercial trafficProjected growth in container traffic and the commercial

semi-trailer market, combined with underutilized BC Ferries’

assets, present an opportunity for BC Ferries.

Container traffic to Vancouver Island (typically travelling via

drop trailer), is expected to continue its expansion as overseas

container movements to the Pacific Gateway increase, and

as the larger “big box” retailers continue to locate on

Vancouver Island.


external cost factorsvolatile fuel costsFuel is our second largest operating expense. At an average

price above $67 US/barrel, the price of oil in 2006 increased

114 per cent from $31 US/ barrel in 2003.

In September 2004, the Commissioner issued an order

authorizing our use of deferred fuel cost accounts to mitigate

the effect on earnings of volatility in fuel oil prices.

As a result of continued high fuel prices in Fiscal Year

2005/06, we submitted applications to the BC Ferries

Commissioner for fuel surcharges to be placed on vehicle

and passenger fares. The Commissioner approved three

separate fuel surcharges, totalling 8.7 per cent for the

major routes and 18.6 per cent for minor routes.

As part of his ruling in January 2006 approving the fuel

surcharge, the Commissioner required BC Ferries to reduce

fuel consumption by 1 per cent in each of the next two years.

To date, we have reduced our annual fuel consumption by

more than six million litres compared to the level of fuel

consumed three years ago.


pressure on construction costsIn recent years, low interest rates, strong economic growth

and a series of major construction projects related to B.C.’s

preparations for the 2010 Olympics have increased demand

for construction services. There has also been considerable

inflation experienced in construction material prices.

With demand outstripping supply in the local construction

industry last year, construction costs for additions and

improvements to our terminals—both uplands and marine

structures—have increased substantially. We expect costs in

these areas will remain high over the next three years.

Vessel construction and repair costs are also affected by

the booming construction sector. Shipyards locally and

around the world are operating at close to capacity and

there is limited competition on the West Coast, especially to

meet drydocking demands. As a result of these factors and

the continuing high price of steel, we expect to experience

ongoing high repair costs for work done on BC Ferries’

vessels, as well as high costs for new vessel construction.

We mitigate these cost pressures as much as practicable

through fixed price contracts.


external competitive pressuresIn the past three years, new competitors have emerged

and departed in the passenger only market as well as

the commercial (drop trailer) traffic market. We expect

competition to increase in these markets. By comparison,

barriers to entry for private sector vehicle and passenger

ferry services remain relatively high.

Competition in the commercial traffic drop trailer market,

dominated by Seaspan Coastal Intermodal Company

(Seaspan), has increased with the emergence of Van Isle

Barge Services Inc. (Van Isle Barge) in April 2004.

The potential exists for drop trailer operators (Seaspan

and Van Isle Barge) to expand their services to include truck

and driver, a service that is currently provided only by

BC Ferries between the Mainland and Vancouver Island.

A passenger-only service offered by HarbourLynx (Nanaimo

to Vancouver) ceased operations when it filed for bankruptcy

in February 2006; however, the new owner of the ferry has

purchased two new engines and has committed to begin

service between the same two locations. In addition, a new

entrant to the market, Nautisol, is proposing to launch a

passenger-only service between Victoria and Vancouver

harbours using a 500 passenger ferry.

Between Vancouver Island and the Mainland, air travel

(HeliJet/Harbour Air/West Coast Air) remains a premium

alternative to ferry travel for time-sensitive travellers.

first nationsWe are committed to building relationships with the many

aboriginal communities in B.C. and to taking a proactive

approach as issues regarding changes in First Nations

aboriginal law and government policies arise.


internal factorsvessel infrastructureWhile we have one of the largest fleets in the world, our

assets are also among the oldest, as shown in the figure

below. Reducing the average age of our fleet through

planned vessel replacement is underway, with seven new

ships being introduced into the fleet over the three next years.

In 2006/07, we invested more than $110 million in

maintenance and capital upgrades to improve the reliability

of our vessels. We will also begin to see the completion and

integration of three new ships in the next year which will

reduce the average age of our operating fleet.

workforce issuesWe have a diverse and skilled workforce that operates out

of 47 ports of call 365 days a year. Ensuring the highest level

of safety, technical and regulatory compliance is achieved

through an extensive system of manpower planning,

succession and development.

In Fiscal 2006/07, the company scheduled in excess of

8,000 training hours and invested approximately $6 million

in training and development initiatives. Among them is an

extensive program of sponsored development and education

assistance for our licensed officers.

With the introduction of numerous vessels and state-of-

the-art technology, we are planning further enhancements

to our already robust suite of training initiatives.

collective agreementThe new agreement provides operational stability through

2012. The Award is final and binding on both parties.

pursuing strategic business opportunitiesThe strategic locations of our terminals provide us with one

of our most important competitive advantages. In addition,

our experience and expertise in planning, developing and

managing ferry operations provides an opportunity for us to

expand our business where viable. In the face of mounting

competition, we will continue to assess, on an ongoing basis,

strategic business opportunities that maintain this advantage

and/or grow our business.


regulatory issuestransport canada regulationsTransport Canada regulates safety on our vessels by

authority of the Canada Shipping Act. Transport Canada’s

revised regulations may significantly affect the investment

decisions and useful life of some of our vessels.

focus on securitySecurity for domestic ferry operations remains relatively

unregulated in Canada. Since 9/11, Transport Canada has

focused primarily on aviation and, more recently, international

ports. However, in November 2005, the Federal Minister of

Transport announced that the security regulations would be

expanded to included domestic ferry operations. BC Ferries,

along with other members of the Canadian Ferry Operators

Association, has been working with Transport Canada on the

design and implementation process. Transport Canada has

dedicated funds to help Canadian ferry operators offset some

capital investments to improve security. It is expected the

regulations will be in place sometime in 2007.

In preparation for the impending regulations, BC Ferries

has developed a company-wide security plan that lays

out the key principles and objectives. To support this

document, a tactical security plan will be developed for

each terminal and vessel.

british columbia ferries commissionerThe British Columbia Ferries Commissioner (the

Commissioner) is required to establish price caps and

monitor service levels for designated ferry route groups.

The Commissioner undertakes this regulation in accordance

with several principles, including placing priority on the

financial sustainability of the ferry system, encouraging a

commercial approach to ferry service delivery and moving

to a greater reliance on a user-pay system over time.

A key focus of the activity of the Commissioner in Fiscal Years

2006/07 and 2007/08 is the establishment of price caps for

Performance Term Two which limit the total average fare in

any designated route group.


environmental regulationsIn the spring of 2007, the Canada Shipping Act’s Regulation

for the Prevention of Pollution from Ships and from

Dangerous Chemicals came into effect. The regulation

sets out new requirements for air emissions and sewage

discharges. It specifies that:

—all marine engines, either new or substantially

rebuilt and installed in BC Ferries’ vessels after the

Regulations come into force must meet specific

limits with respect to the emission of nitrogen

oxides (NOx).

—by 2011 all BC Ferries’ vessels must be compliant

with sewage effluent standards.

exploring alternative service providersThe Coastal Ferry Act requires that we seek additional or

alternative service providers on designated routes through

fair and open competitive processes. The company has

filed an Alternative Service Providers Plan (ASP Plan) with

the BC Ferries Commissioner which sets out the specific

routes where we will consider alternative service delivery

options during the first performance term of the Coastal

Ferry Services Contract.

We issued a Request for Proposals in February 2007 to

two proponents on the Brentwood Bay–Mill Bay route. We

also expect to issue a Request for Proposals regarding the

operation of our four routes north of Port Hardy; however,

the timing of this request is uncertain.


6 2007–08 business plan goals

Our business plan strateGies

are structureD arOunD

fiVe KeY GOals critical

tO Our success. Of these,

nO GOal is mOre impOrtant

than safetY.

safety To continuously improve the safety of our operations inclusive of vessels, terminals and facilities.

operational reliability

To continuously improve the operational reliability of vessels, terminals and facilities.


To be better at everything we do.

value for money

To continuously improve value to our customers at every point along the customer experience chain.

financial integrity

To achieve key financial targets, ensuring that sufficient capital and retained earnings are available to revitalize our fleet, facilities and infrastructure, while minimizing fare escalation.

the FollowIng sectIons deFIne the suPPortIng strategIes and tactIcs For each oF the FIve BusIness Plan goals.


strategies and tacticsmeet or exceed safety regulationsAt BC Ferries, safety for both employees and customers

is priority number one. We will:

•Continuetoimproveourworld-class

safety programs.

•Incorporatethe41recommendationsofthe

Morfitt safety review.

•DevelopanenhancedOperationsCentreto

improve ship to shore communications and

provide timely customer information.

•Reviewvesselandterminalevacuationplans

and update where necessary.

•Implementlifesavingapplianceandstructural

fire protection upgrades to our vessels.

•DeployVoyageDataRecorders(VDRs)on

our existing vessels.

•Developacomprehensivefleet-widesecurity

plan, including Closed Circuit Video Equipment

and Security Access controls.

•Engageindustryleaderstoassistinthereview

of the Safety Management System.

to contInuously ImProve the saFety oF our oPeratIons InclusIve oF vessels, termInals and FacIlItIes.

GOal

safety

Measure03/04Actual

04/05Actual

05/06Actual

06/07Target

06/07Actual

07/08Target

Employee Safety Index(frequency X severity*) / 1,000

3.34 2.71 2.02 1.88 3.08 1.82

Passenger Safety Index(# passenger injury incidents / 1,000,000 passengers)

13.85 13.67 13.58 13.62 11.31 13.50

*Frequency = (Time loss injuries x 100)/(Total paid employee hours/1,827); Severity = (Person days lost x 182,700)/Total paid employee hrs).


achieve regulatory efficienciesWorking closely with Transport Canada and other agencies

to enhance safety, we will:

•Bettercoordinatesafetypracticeswithregulatory

changes.

•MaintainregularmeetingswithTransportCanada

to improve our relationship and reduce regulatory

uncertainty.

•ParticipatewithotherCanadianferryoperators

and Transport Canada to establish new security

regulations.

•Sharebestpracticeswithothermarine

organizations.

strengthen the management of operationsWe will continue to ensure our employees clearly understand

their roles and how they can contribute individually

—and as a team—to our overall success. Accordingly, we

continue to establish clear accountabilities and responsibilities

for all employees.

•Implementaterminalorganizationalstructurebased

on a regional approach that will better align with

vessel operations and engineering.

•Expandthe“reach”ofvesselintegrationteams

deeper into the company to ensure the safe and

efficient integration of new ships into operational

service.


strategies and tacticsinvest in our assetsWe are investing in our terminal and vessel infrastructure

through upgrades and replacements. This includes

managing these assets more effectively through long-term

asset management plans. We will:

•Renewandrevitalizeourfleetbyintegrating

the following vessels:

—the three Super C-class vessels,

the Coastal Renaissance, Coastal Inspiration

and Coastal Celebration;

—the Northern Adventure;

—the Kuper; and

—a new 125-car Intermediate-class ferry.

•Continuetodevelopandfinalizeterminal

and vessel master plans.

•Developstandardizedmaintenanceplans

for each vessel.

meet or exceed environmental standardsWe will reduce our environmental footprint by increasing

the energy efficiency of our company. We will also implement

sewage treatment upgrades, and burn high quality diesel fuel

to reduce emmissions of air pollutants.

to contInuously ImProve the oPeratIonal relIaBIlIty oF vessels, termInals and FacIlItIes.

GOal

operational reliability

Measure03/04Actual

04/05Actual

05/06Actual

06/07Target

06/07Actual

07/08Target

Reliability Index(scheduled number of round trips less cancelled sailings / scheduled number of round trips)

99.01 99.69 99.4899.4 to 99.59

99.6699.4 to 99.59

Asset Re-investment(weighted average age of vessels by gross registered tonnage)

27.9 28.9 29.5 25.4 25.4 21.5


strategies and tacticsfacilitate a culture of continuous improvement

We will work cooperatively with the

BC Ferry & Marine Workers’ Union to continuously

improve all facets of our business with a particular

emphasis on the Safety Management System and

operational safety.

engage, leverage and develop our human capitalTo create a competitive people advantage, we will build

a skilled workforce that is performance-based, service-

oriented and focused on continuous improvement. We will:

•Enhanceemployee/union/managementrelations.

•Leverageouremployeedevelopment

training programs.

•Identifyandencourageoff-shore

training opportunities.

•ContinueplanningforaFerryAcademy.

•Developandimplementprogressivehuman

resource practices.

•Commencetheprocessofpositioningand

marketing BC Ferries as “The Developer of people,

within an exciting workplace of endless career

opportunity.”

enhance community, stakeholder and first nations strategiesTo ensure that we can continuously improve as a company

we must strive to better understand our customers: the

public and the communities we serve. We will:

•Implementanevenmoreproactiveapproach

to community and customer relations, with an

integrated pricing, sales and marketing function

focused on deriving incremental revenue.

•EnhanceFirstNationsrelationshipsbyincorporating

the Aboriginal Relations program into our

Community Relations portfolio.

•WorkcloselywiththeOrganizingCommitteeof

the 2008 North American Indigenous Games.

•ConnecttheBCFerries’brandtotheactualbusiness

by positioning the brand closer to the customer

both onboard and at terminals (e.g. ticket booth

handouts).

•Alignthecommunityinvestmentprogramwith

the public relations strategy.

•WorkcollaborativelywithFerryAdvisory

Committees through the Performance

Term Two process.

•ImplementaNorthernbusinessrecoveryprogram.


to Be Better at everythIng we do.

GOal

Performance Measures for “Continuous Improvement” are addressed through the specific performance targets for each of

the metrics identified under Safety, Operational Reliability, Value for Money and Financial Integrity.


strategies and tacticsincrease customer service and pursue new market opportunitiesWe continually strive to improve our customers’ experience

in order to increase our customer usage and revenue. This

includes listening to our customers and evaluating their

suggestions. We will:

•Increaseourknowledgeofcustomers’needsand

expectations to improve customer service.

•Implementnewsignageandimprovedpublic

announcement systems at our terminals.

•Implementnewfoodandretailofferingsinline

with customer needs.

•Renewpassengerareasonvesselsandatterminals.

•Implementnewmarketingprogramstobuild

awareness and grow revenue.

•Explorenewbusinessopportunitiesand

partnerships.

•Exploremarketpotentialintravelandcommercial

sectors:

—implement a new sales centre in Vancouver

to broaden market reach, raise our profile and

stimulate the travel and tourism segments;

—implement integrated sales solutions for

the commercial traffic market;

—encourage new travel through innovative pricing;

—improve online customer service tools

and increase customer care productivity.

implement enabling information systemsBuilding on our investments in our information systems

will ensure that we have the capacity to quickly adopt new

business processes and practices. We will:

•Expand“smartmedia”including

automated ticketing.

•Upgradeourwebsiteandsupportinginfrastructure.

to contInuously ImProve value to our customers at every PoInt along the customer exPerIence chaIn.

GOal

value for money

Measure03/04Actual

04/05Actual

05/06Actual

06/07Target

06/07Actual

07/08Target

Overall Customer Rating (out of 5) 4.0 4.1 4.1 4.1 4.2 4.1

Cost per Passenger (total operation cost – ancillary revenue) / total passengers

$17.49 $17.56 $16.45 $16.81 $17.07 $17.96*

Earnings per FTE (EBITDA / Total FTEs)

$29.23K $32.53K $36.94K $39.30K $37.54K $39.26K*

Overall Customer Rating = score on ‘overall rating’ from annual independently conducted survey which specifically measures overall customer satisfaction with BC Ferries.

*Includes Deas Pacific Marine.


strategies and tacticslong-term financial planningTo ensure we can replace our infrastructure in

a cost effective and efficient manner. We will:

•Managelong-termcapitalandoperatingplans.

•Pursuedutyremissiononvesselsbuilt

outside Canada.

•Implementnewfuelconsumptioninitiatives

to exceed 1 per cent per year on average

reduction targets.

maintain a strong relationship with the commissioner

•Developandimplementrevisedrouteservice

schedules where appropriate.

•WorkwiththeCommissionerregardingprice

caps for Performance Term Two.

•Explorewaystoreducecostsandreview

schedules where efficient.

financial integrity

to achIeve key FInancIal targets, ensurIng that suFFIcIent caPItal and retaIned earnIngs are avaIlaBle to revItalIze our Fleet, Fa-cIlItIes and InFrastructure, whIle mInImIzIng Fare escalatIon.

GOal

Measure03/04Actual

04/05Actual

05/06Actual

06/07Target

06/07Actual

07/08Target

EBITDA ($millions) $98 $112 $128 $134 $124* $135**

EBITDA = earning, before interest, taxes, depreciation, and amortization in accordance with the Company’s financial standards and approved requirements of the Audit & Finance Committee and External Auditor.

*2006/07 Actual EBITDA reflects the impact of increased wages and benefits for lump sum payments to employees totalling $3.6 million as a result of a mediation-arbitration award and a $5.0 million reduction from anticipated performance due to the loss of the Queen of the North and the modified service delivery on our Northern Routes.

**Includes Deas Pacific Marine.


operating budgetFor 2007/08, we are forecasting net income of $35 million.

This is based on revenues of $631 million, offset by total

expenditures of $596 million.

The net earnings reductions in 2007/08 are a result of

enhanced safety and security initiatives, and increased

interest and amortization costs associated with our capital

expenditure program—particularly the delivery of one

large Super C-class vessel.

7 financial plan

Our financial plan suppOrts

the strateGies anD tactics

Within this business plan.

it cOntains DetaileD infOrmatiOn

On Our 2007/08 OperatinG

anD capital buDGets.

Operating Budget (millions)2006/07 Actual

2007/08 Budget

Operating Revenues

Tariff $363.3 $382

Catering & Other Revenues $97.7 $100

Federal-Provincial Contract $25.3 $26

Coastal Ferry Services Contract $108.4 $123

$594.7 $631

Expenditures

Operations, Maintenance and Administration $472.0 $496

Net Financing Expense $16.7 $30

Loss (Gain) on Disposal of Capital Assets $0.2

Amortization $55.4 $71

Loss (Gain) on Subsidiaries $1.6 (1.2)

$545.9 $596

Extraordinary Item (Gain) (61.3)

Net Earnings $110.1 $35


revenues

our revenues are Projected to grow By 6.1 Per cent In 2007–08.

REVENUES

0

200

2006/07ACTUAL

595 631

400

600

$ M

illio

ns

800

2007/08


our revenues will be affected by the following:fare revenueFare revenue is driven by our tariff rates and traffic volume

and is expected to increase by 5.1 per cent over 2006/07.

In 2007/08, passenger traffic is expected to grow 1.6 per cent

and vehicle traffic is expected to grow 1.4 per cent from

2006/07 levels.

non-fare revenueGross catering and retail revenues make up the largest

component of this revenue category. For 2007/08, non-fare

revenues are expected to increase by 2.5 per cent. This

growth will be driven through a combination of onboard

vessel design improvements, new product introduction,

sponsorships and advertising exposure revenue.

federal-provincial subsidy agreementThis longstanding agreement between the federal

government and the provincial government to provide

adequate ferry service is indexed to the Vancouver CPI.

The Coastal Ferry Services Contract between the Province

and BC Ferries provides that the Province will make

available to BC Ferries the full proceeds of the subsidy

from the Federal Government. For 2007/08, revenue

from this source is expected to grow by 2.0 per cent.

provincial ferry services contract feesThe Coastal Ferry Services Contract between BC Ferries

and the Province of British Columbia has three components.

The primary component is for the provision of services on

designated routes. The second includes reimbursement from

the Province for fares associated with social program areas

(e.g. medical travel assistance program, children travelling

for school and seniors travelling Monday to Thursday).

The final component is funding provided by the Province

to BC Ferries to oversee service provided by independent

operators on eight non-regulated routes. For 2007/08,

revenue in this area is expected to grow by 13.5 per cent.

This growth is primarily attributed to an increase in service

fees for the Northern Routes.


operations, maintenance and administrationFor 2007/08, costs in this area are expected to grow by

5.1 per cent. This growth is attributable to two factors:

higher wages reflecting the implementation of our collective

agreement and increased pressures to maintain our fleet.

fuelFuel is our second largest operating expense. Expenditures

in this area are affected by four factors: total consumption,

the price per barrel (US dollars), refining premiums and the

exchange rate.

While we have reduced our annual fuel consumption by more

than six million litres compared to the level of fuel consumed

three years ago, the balance in our deferral account was still

$18.8 million by the end of the fiscal year.

amortizationFor 2007/08, amortization costs are expected to

increase 27.4 per cent as a result of a number of factors:

capital asset additions coming into service and capital

expenditures to upgrade our existing assets, particularly

vessel upgrades to the Queen of Alberni and the Queen of

New Westminster; delivery of the Kuper, a Super C-class

vessel and the Northern Adventure; and terminal upgrades at

Swartz Bay and Departure Bay.

net financingFor 2007/08, our net financing expense is expected to

increase by 81.4 per cent. This growth is due to our capital

expenditure program, which will grow to $524.5 million in

2007/08. A large component of these expenditures will be

used to fund the new Super C-class vessels.

expenses

our exPenses are exPected to grow By 9.1 Per cent In 2007/08, due PrImarIly to Increases In amortIzatIon and FInancIng costs as new shIPs are Placed In servIce, and ImPlementatIon oF enhanced saFety and securIty InItIatIves.

EXPENSES

0

200

2006/07 ACTUAL

546

2007/08

596

400

600

$ M

illio

ns

800


We utilize capital assets with a replacement value

of approximately $4.7 billion. Our ferry services

are supported by 36 vessels, 47 service terminals, four

maintenance yards, one refit complex and a head office.

The major strategic issue we face continues to be the

replacement of our infrastructure—specifically, vessels and

terminals. Our major capital projects for 2007–08 include:

vessels•ConstructionofourSuperC-classvessels,the

Coastal Renaissance, Coastal Inspiration and

Coastal Celebration.

•Constructionofanew125-carIntermediate-classferry.

•Completionofthemid-lifeupgradetothe

Queen of Alberni.

•UpgradeoftheQueen of New Westminster.

capital budget

to uPgrade and rePlace our assets, we are PlannIng to Invest $524.5 mIllIon In 2007–08.

coastal renaissance keel laying— january 2007


terminals•UpgradestoourterminalfacilitiesatDepartureBay.

•Expansionoftheholdingcompoundandanew

east exit road at our terminal at Swartz Bay.

•Replacementorupgradesofsignificantmarine

structures at a number of our terminals, including

Departure Bay, Horseshoe Bay, Tsawwassen,

Village Bay and Otter Bay; and our northern terminals

to accommodate the arrival of replacement vessels

for the northern routes.

information systems•Investmentsinprojectssuchastheexpansionof

automated ticketing and upgrades to the web site.

•Improvementstocompanysupportsystemsand

hardware upgrades to increase the productivity and

security of our enterprise systems.

The following table details the capital expenditures for

2006/07 and the planned expenditures for 2007/08

by asset type, including interest during construction

and net of proceeds from the Federal Marine Security

Contribution Program.

Asset Type (millions)06/07Actual

07/08Budget

Vessel Projects 205.6 435.4

Terminal Projects 48.4 71.4

Information Systems and other Projects 8.6 17.7

Total $262.6 $524.5

departure Bay tiCketing Building— artists rendering


The strategies and tactics outlined within this

Business Plan will ensure that we are responsive to

our changing business environment. Our focus on our

five goals will help ensure that we:

•continuetofocusonourmainpriority—safety;

•manageourassetrefurbishmentandreplacement

programs to deliver exceedingly reliable service;

•continuouslyimproveourapproachtodelivering

services by focusing on meaningful and measurable

outcomes while ensuring safety of passengers;

•exceedourcustomers’expectationsbyproviding

value for money spent; and,

•achieveourfinancialtargetswhileminimizing

fare escalation.

Providing a safe and continuously improving west coast

travel experience can only be achieved with the support of

our employees and our customers. With safe and efficient

integration of two new ships into the fleet in the next year,

we will successfully move the company into a new era.

Our business plan reflects

Our primarY fOcus On safetY

anD Our cOmmitment tO

OfferinG an eVer-imprOVinG

anD trulY West cOast eXperience

tO the resiDents, tOurists

anD cOmmercial custOmers

WhO traVel With bc ferries.

8 conclusion

2 0 0 7 – 0 8 b u s i n e s s p l a n

2007–08 business plan - bc ferries · and analysis for the fiscal year ended march 31, 2007 and...

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